NOTICE: This opinion is subject to motions for rehearing under Rule 22 as
well as formal revision before publication in the New Hampshire Reports. Readers
are requested to notify the Reporter, Supreme Court of New Hampshire, Supreme
Court Building, Concord, New Hampshire 03301, of any editorial errors in order
that corrections may be made before the opinion goes to press. Opinions are
available on the Internet by 9:00 a.m. on the morning of their release. The
direct address of the court's home page is: http://www.state.nh.us/courts/supreme.htm

Philip T. McLaughlin, attorney general (Anne E. Edwards, senior
assistant attorney general, on the brief and orally) and Gallagher, Callahan
& Gartrell, of Concord (Walter L. Maroney on the brief), for the
respondents.

DALIANIS, J. The petitioners, a class of similarly situated taxpayers, appeal
the Superior Courtís (McGuire, J.) ruling that they were not entitled
to a refund of the New Hampshire interest and dividend tax (I&D tax) paid
during the 1991 through 1994 tax years on interest and dividends from
out-of-state non-bank investment sources. We affirm.

I. Relevant Facts

This case is before us again after remand. SeeSmith v. N.H. Depít
of Revenue Admin., 141 N.H. 681 (1997) (Smith I). We recite only a
brief history of the facts necessary to decide this appeal.

The I&D tax was enacted in 1923. Until 1995, interest and dividends
derived from investments in New Hampshire state banks, trust companies, building
and loan associations, credit unions or national banks with a New Hampshire
branch were exempt from the I&D tax. See RSA 77:4, I-II (1991)
(amended 1995). The legislature repealed these exemptions in 1995. See
Laws 1995, ch. 188.

The petitioners are a class of New Hampshire residents who paid I&D taxes
on interest and dividends earned on out-of-state investments from 1991 through
1994. These out-of-state investments included: (1) the full range of bank
deposits in out-of-state banks; (2) stock in out-of-state stock banks; (3) stock
in out-of-state bank holding companies; (4) municipal, state and federal
government bonds; (5) treasury bills; (6) corporate bonds; (7) publicly traded
stock; and (8) cash equivalents, such as money management accounts, maintained
by brokerages.

In 1995, the petitioners sued the respondents, the New Hampshire Department
of Revenue Administration and its commissioner, claiming that the tax exemptions
favored New Hampshire banks and thereby violated Part I, Article 12 and Part II,
Articles 5 and 6 of the State Constitution and the Commerce and Equal Protection
Clauses of the Federal Constitution. The petitioners sought a full refund of all
I&D taxes paid from 1991 through 1994. The Superior Court (Manias,
J.) transferred without ruling several constitutional questions for our review,
excluding any issues on remedy. We answered two of these questions in Smith I.

In Smith I, 141 N.H. at 688, we upheld the validity of the tax
exemptions under the State Constitution. We held, however, that the legislatureís
"protectionist effort" in favor of domestic banks violated the
Commerce Clause of the United States Constitution. Id. at 688, 695-96.
Having determined that the exemptions discriminated on their face against
out-of-state banks and, therefore, violated the Commerce Clause, we remanded for
a determination as to whether the exemptions, in practice, also discriminated
against out-of-state non-bank investment sources. Seeid. at 696.

Following a six-day merits hearing, the trial court determined that the
petitioners failed to show that the exemptions, in practice, discriminated
against out-of-state non-bank investment sources. Accordingly, the court ruled
that they were entitled to only a partial refund of their I&D taxes,
representing the I&D taxes they had paid on out-of-state bank investments.
The court ruled that the petitioners were not entitled to a remedy regarding the
I&D taxes paid on investment income from out-of-state non-bank sources. The
petitioners appealed.

II. The Dormant Commerce Clause

In Smith I, we outlined a comprehensive framework of Commerce Clause
jurisprudence, and need not repeat ourselves here. We do, however, revisit a few
fundamental principles.

The Commerce Clause grants Congress the authority to "regulate Commerce
. . . among the several States." U.S. CONST. art. I, ß 8, cl. 3. This
power includes a negative aspect, known as the dormant Commerce Clause, which
prohibits States from unjustifiably discriminating against or burdening the
interstate flow of articles of commerce. Oregon Waste Systems, Inc. v.
Department of Environmental Quality of Ore., 511 U.S. 93, 98 (1994). The
core purpose of the dormant Commerce Clause is to prohibit economic
protectionism Ė "that is, regulatory measures designed to benefit
in-state economic interests by burdening out-of-state competitors." New
Energy Co. of Indiana v. Limbach, 486 U.S. 269, 273-74 (1988). As related to
state taxation, the dormant Commerce Clause precludes States from "impos[ing]
a tax which discriminates against interstate commerce by providing a direct
commercial advantage to local business." Bacchus Imports, LTD v. Dias,
468 U.S. 263, 268 (1984) (quotations and ellipsis omitted).

The Supreme Court has adopted what amounts to a two-tiered approach to
analyzing state economic regulation under the Commerce Clause. Brown-Forman
Distillers v. N.Y. Liquor Auth., 476 U.S. 573, 578-79 (1986). "When a
state statute directly regulates or discriminates against interstate commerce,
or when its effect is to favor in-state economic interests over out-of-state
interests, [the Supreme Court has] generally struck down the statute without
further inquiry." Id. at 579. Such a statute is "virtually perse invalid." Oregon Waste Systems, Inc., 511 U.S. at 99.

When, however, a statute only indirectly affects interstate commerce and
regulates evenhandedly, the Supreme Court has "examined whether the Stateís
interest is legitimate and whether the burden on interstate commerce clearly
exceeds the local benefits." Brown-Forman Distillers, 476 U.S. at
579; seePike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
Nondiscriminatory state regulations having only incidental effects on interstate
commerce are valid unless "the burden imposed on such commerce is clearly
excessive in relation to the putative local benefits." Pike, 397
U.S. at 142.

"In either situation the critical consideration is the overall effect of
the statute on both local and interstate activity." Brown-Forman
Distillers, 476 U.S. at 579.

In Smith I, 141 N.H. at 695, the respondents conceded, and we held
that the exemptions at issue facially discriminated against out-of-state banks.
The respondents also conceded that the discrimination did not advance a
legitimate local purpose. Id. at 694. In light of these concessions, we
remanded the question of whether the exemptions also discriminated
against non-bank investment sources in their practical effect, thus entitling
the petitioners to a full refund of the I&D taxes they paid on all
out-of-state investments during the relevant years. Id. at 696-97.

III. Analysis

A. Standard of Review

On appeal, "[w]e will affirm the trial courtís factual findings unless
they are unsupported by the evidence, and will affirm the trial courtís legal
rulings unless they are erroneous as a matter of law." Morgenstern v.
Town of Rye, 147 N.H. 558, 561 (2002) (citation omitted).

As an initial matter, we reject the petitionersí assertion that we must
review the trial courtís factual findings denovo because this
appeal involves constitutional issues. "[N]o broader review is authorized
here simply because this is a constitutional case, or because the factual
findings at issue may determine the outcome of the case." Maine v.
Taylor, 477 U.S. 131, 145 (1986); seeMorgenstern, 147 N.H. at
561 (employing deferential review of trial courtís findings in context of
constitutional challenge). The empirical component of assessing the validity of
a constitutional claim, like any other form of fact-finding, is the basic
responsibility of the trial courts. Maine, 477 U.S. at 144-45. Our task
on appeal "is not to decide whether we would have found differently but to
determine whether a reasonable person could find as did the trial judge." Averill
v. Dreher-Holloway, 134 N.H. 469, 472 (1991) (quotations omitted); accordMaine, 477 U.S. at 145.

B. Smith I

The petitioners first urge us to reconsider Smith I. They invite us to
conclude, as a matter of law, that the tax exemptions at issue facially
discriminated against all out-of-state investment sources, not just out-of-state
banks. Even assuming that it would be procedurally appropriate for us to revisit
Smith I in this appeal, we decline the petitionersí invitation to do
so.

The petitioners particularly object to our remand instructions in Smith I,
which required the trial court to "make a factual determination whether New
Hampshire bank interest and dividends compete with other sources of investment
income such as stock dividends and bond interest." Smith I, 141 N.H.
at 696. They argue that the Commerce Clause does not require an analysis of
whether the entities at issue compete against one another.

We take this opportunity to clarify why it was necessary for the trial court
to analyze whether out-of-state non-bank investment sources and in-state banks
compete in the same market in order to determine whether the exemptions
discriminated against out-of-state non-bank investment sources.

"[A]ny notion of discrimination assumes a comparison of substantially
similar entities." General Motors Corp. v. Tracy, 519 U.S. 278, 298
(1997). Entities are "substantially similar" or "similarly
situated" for Commerce Clause purposes when they compete against one
another in the same market. Seeid. at 299. In this case, the
entities at issue, in-state banks and out-of-state non-bank investment sources,
have different investment products. SeeSmith I, 141 N.H. at 690.
As we explained in Smith I, "[b]anks are different." Id.
at 689. They have "distinct characteristic powers, privileges, and
responsibilities." Id. "Just as banks differ from other
business institutions, bank deposits differ from other investments. Stock in a
local Ďstock bankí is a different sort of stock." Id. at 690.

"[W]hen the allegedly competing entities provide different products, as
here, there is a threshold question whether the [entities] are indeed similarly
situated for constitutional purposes." General Motors Corp., 519
U.S. at 299. "This is so for the simple reason that the difference in
products may mean that the different entities serve different markets, and would
continue to do so even if the supposedly discriminatory burden were
removed." Id. Thus, unless the entities compete against one another
in a single market, "there can be no local preference, whether by express
discrimination against interstate commerce or undue burden upon it, to which the
dormant Commerce Clause may apply." Id. at 300.

We find the petitionersí attempt to distinguish General Motors Corp.
unpersuasive. The petitioners argue that General Motors Corp. applies
only to regulated markets, such as the market for natural gas. The Supreme Court
did not limit its holding to regulated markets, however. Moreover, the idea that
discrimination under the Commerce Clause must involve entities that compete
against one another is not a new one. SeeAlaska v. Arctic Maid,
366 U.S. 199, 204-05 (1961) (holding that claimants and cold storage facilities
served separate markets, did not compete with one another, and thus were not
similarly situated for Commerce Clause purposes); Bacchus Imports, LTD.,
468 U.S. at 271 ("as long as there is some competition between the locally
produced exempt products and nonexempt products from outside the State, there is
a discriminatory effect"); Oklahoma Tax Commín v. Jefferson Lines,
Inc., 514 U.S. 175, 197 (1995) ("States are barred from discriminating
against foreign enterprises competing with local businesses.").

The petitioners assert that because the Supreme Court did not analyze whether
there was competition between domestic and foreign interests in a number of
cases, no such analysis is required "in an unregulated markets case."
We disagree.

In the cases upon which the petitioners rely, no competition analysis was
required because the statutes at issue differentiated between obviously
similarly situated entities. SeeSouth Central Bell Telephone Co. v.
Alabama, 526 U.S. 160, 169-70 (1999) (franchise tax gave domestic
corporations ability to reduce tax liability by reducing par value of stock,
while denying foreign corporations the same ability); Fulton Corp. v.
Faulkner, 516 U.S. 325, 328 (1996) (stock in corporation doing all of its
business in-state entitled to 100% taxable percentage deduction, while stock in
corporation doing all of its business out-of-state not entitled to any
deduction); Boston Stock Exchange v. State Tax Commín, 429 U.S. 318,
330-32 (1977) (security transactions involving out-of-state sales taxed more
heavily than those involving in-state sales).

C. Trial Courtís Legal Rulings and Factual Findings

The petitioners next assert that the trial court employed an erroneous legal
standard to determine whether out-of-state non-bank investment sources competed
with in-state banks. We disagree.

Consistent with Supreme Court precedent and with the remand instructions in Smith
I, the trial court first noted that the exemptions at issue discriminated on
their face against out-of-state banks only. "By their very terms, the
statutory exemptions at issue in this case economically protected New Hampshire
banks. New Hampshire banks were advantaged to the disadvantage of out-of-state
banks. The exemptions encouraged investment in

New Hampshire banks by providing an economic benefit to investors in in-state
banks which investors in out-of-state banks did not receive."

The court then examined whether other investment products, not subject to the
facial discrimination, were discriminated against. Pursuant to General Motors
Corp., the court examined whether products from out-of-state non-banks were
similarly situated to products from New Hampshire banks, in that they competed
against one another in the same market. We find no legal error in this standard.

The petitioners assert that the trial court, in effect, accepted the
respondentsí defense that the tax was so small that its effect on the
marketplace was deminimis, and could not have constituted a
constitutional violation. We do not share the petitionersí interpretation of
the trial courtís ruling. Nor do we agree with the petitioners that the trial
court required them to quantify the extent of the alleged discrimination between
the investment products of out-of-state non-banks and of New Hampshire banks.

We similarly reject the petitionersí argument that the legal standard the
trial court employed is "ill-advised" because it requires
"complex economics and market analysis in every Commerce Clause case."
We do not speak to every Commerce Clause case, but conclude that, in this case,
the petitionersí burden was not unduly difficult.

The petitioners needed to convince the trial court, by a preponderance of the
evidence, that, absent the exemptions, local bank products and out-of-state
non-bank products would have served the same market of investors. In other
words, the petitioners had to demonstrate that the exemptions caused investment
in local bank products that otherwise would have occurred in non-bank products.

Because the I&D tax exemptions had been repealed for approximately five
years by the time the merits hearing occurred, the petitioners had a unique
evidentiary opportunity. Unlike other cases in which a party can rely only upon
the mere theoretical possibility that, absent the allegedly impermissible
statute, entities producing different products would have competed in the same
market, the petitioners could have shown how the repeal of the exemptions actually
affected the investor marketplace. They had the benefit of several yearsí
passage of time without the exemptions to compare marketplace interplay among
local bank products and out-of-state non-bank products.

For example, the petitioners could have collected empirical evidence, both
before and after the repeal, to show that investors tended to invest more in New
Hampshire bank products before 1995, and, after 1995, shifted assets to non-bank
products or invested equally in both since bank products no longer enjoyed the
tax exemptions. Alternatively, they could have examined whether local banks
readjusted their products after the repeal in an attempt to maintain the alleged
competitive advantage over non-bank products and retain more investor dollars.

Instead of relying upon this kind of empirical analysis, the petitioners
advanced a broad economic theory that the financial marketplace is global such
that every financial investment competes with every other
financial investment for every available investment dollar. As
fact-finder, the trial court was free to reject this theory, however, and we
find no legal error in its doing so. SeeTennessee Gas Pipeline Co. v.
Town of Hudson, 145 N.H. 598, 602 (2000) (trial court may accept or reject
such portions of evidence presented, including that presented by expert
witnesses).

The petitionersí expert, Professor Dennis Logue of the Tuck School of
Business at Dartmouth College, testified that under modern portfolio theory,
investments and financial vehicles share four characteristics: risk, return,
convenience and liquidity. Consumers choose among products based upon the
relative level of each of these characteristics. Because every financial
investment has these four characteristics to different degrees, Professor Logue
concluded that New Hampshire bank investment products necessarily compete with
"virtually every other financial asset in the world in some way or
another."

Professor Logue also predicted that, because of the exemptions, "New
Hampshire investors would choose to hold a larger fraction of their financial
wealth as deposits or instruments in New Hampshire banks than they would have
absent the tax-advantaged status of those investments. That is to say, the
effect of the tax exemption was to cause New Hampshire residents to hold fewer
out-of-state securities than they might otherwise have held."

The respondentsí evidence directly contradicted the petitionersí
evidence. For instance, Marc Hebert, a certified financial planner, testified
that although all financial vehicles share characteristics of risk, return,
convenience and liquidity, the relative characteristics of such instruments may
differ so significantly as to place them in different Ė and essentially
non-competitive Ė "asset classes."

Dr. Margaret Guerin-Calvert, a consulting economist and principal of
Economist, Incorporated, an economic consulting firm, testified that to measure
competition among products or services, one must analyze either the extent to
which price or other marketing changes to one product causes the producers of
potentially alternative products to react competitively or the extent to which
consumers of products treat other products as "substitutable" or
"reasonably interchangeable."

After analyzing bank investment products and non-bank investment products,
Dr. Guerin-Calvert concluded that, contrary to the petitionersí theory, all
bank deposit products do not compete in a national market with all other
financial instruments. She testified that, in the view of the Federal Reserve
Board, for instance, banks offer unique services and products that are
competitive only with the services and products offered by other banks. "[T]he
only products to which consumers could and would turn in the event of a price
increase of this set of products, would be similar products or sets of products
produced by other banks." She also testified that the Federal Reserve Board
defines the geographic scope of the markets in which banks compete with one
another as local, not national.

Dr. Guerin-Calvert offered alternative explanations for some of the
investment patterns the petitionersí expert had discovered. For instance,
Professor Logue concluded that because consumers often have both low risk/low
return assets, such as bank certificate of deposit accounts, and higher
risk/higher return equities, such as common stock, and often transfer money
between these two types of assets, these assets are substitutable for one
another.

By contrast, Dr. Guerin-Calvert hypothesized that "[t]he fact that
shifting funds out of a higher risk item and into a lower risk item reduces the
overall or composite risk of a portfolio does not demonstrate that the two
products are substitutes for each other. It does not demonstrate that small, but
significant changes in the price of one are likely to result in large increases
in the quantity purchased of the other. It could instead be reflective of
consumersí interest in having a diversified set of items to meet a variety of
needs."

Dr. Guerin-Calvert also conducted a regression analysis to see whether the
investment behavior of consumers changed after the exemptions were repealed. She
observed that "there was no substantial decline in [bank] deposit holdings
in many deposit categories in New Hampshire banks" after the exemptions
were repealed. She opined that the repeal, in fact, did not change investor
behavior.

After weighing the conflicting evidence, the trial court concluded that the
global financial marketplace the petitioners posited is actually comprised of a
number of smaller sub-markets in which similarly situated institutions with
substantially similar products compete against one another.

Relying, in part, upon our conclusion in Smith I, 141 N.H. at 689-90,
that banks and bank stock are "different," the court ruled that the
petitionersí economic theory failed to establish that out-of-state non-bank
investment sources and New Hampshire banks competed with one another in the same
market. The court observed that the petitioners had not proved that
"investor decisions between non-bank sources of income and bank sources are
ever governed by anything other than tax-neutral criteria." Further, the
court noted that the petitioners did not "produce any evidence tending to
show that any investor ever chose a New Hampshire bank product instead of an
out-of-state non-bank investment because of the . . . tax exemptions." Nor
was there any evidence that out-of-state non-bank investment sources
"either saw themselves as competing in the same market with New Hampshire
banks or acted as if they were." Absent this evidence, the court concluded
that the petitioners had failed to show that the exemptions discriminated
against out-of-state non-bank investment sources.

The trial court found, in particular, that "[p]rivate debt or equity
instruments are not substitutable for and do not compete with bank depository
products in a defined market." The petitioners challenge this finding as
not supported by the evidence. We disagree. This finding is amply supported by
Dr. Guerin-Calvertís testimony.

For instance, before opining that bank products and services compete only in
a market with the products and services offered by other banks, Dr. Guerin-Calvert
explained the differences between equity instruments and bank depository
instruments, including their different functions. For example, she testified
that while consumers can readily obtain access to cash from bank depository
products, they cannot do so for equity instruments such as stock. Moreover,
unlike other instruments, bank depository products are federally insured.
Further, investors use bank depository products for different purposes than
other instruments.

The petitioners also challenge the trial courtís finding that "[b]ecause
local bank stock is privately held and rarely traded it is not substitutable for
publicly-traded stock." This finding is also supported by the evidence.

Numerous witnesses testified that the stock in many New Hampshire banks was
not publicly traded. Unlike stock traded on a national exchange, acquiring bank
stock generally requires going through an auction process when the stock becomes
available for sale. Witnesses also testified that, for a number of reasons, New
Hampshire bank stock was neither as liquid as nor as marketable as non-bank
stock.

Because we conclude that the evidentiary record fully supports the trial
courtís factual findings, we uphold its determination that investment products
from out-of-state non-banks do not compete in the same market with investment
products from New Hampshire banks. SeeMorgenstern, 147 N.H. at
561.

We disagree with the petitionersí assertion that whether the products of
these entities compete in the same market is a legal question entitled to denovo review. This is a factual question entitled to deference. Moreover,
because we hold that the trial court used the correct legal standard to
determine whether the exemptions discriminated against out-of-state non-bank
investment sources, there is no need to weigh the evidence against a different
legal standard. Even were we to agree that the trial court used an incorrect
legal standard, ordinarily we would not reweigh the evidence, but would remand
to the trial court to do so. SeeSimplex Technologies v. Town of
Newington, 145 N.H. 727, 732 (2001).